New Rules for RTDs in Vermont – Including DtC Shipping

On July 1, 2022, Vermont Act 177 takes effect, creating new ways to sell Ready-to-Drink (RTD) spirits in the state, including permission for distillers to ship these products direct-to-consumer (DtC).

As defined in the act, “RTD Spirits Beverages” are alcoholic beverages obtained from distillation that contain no more than 12% ABV and are packaged in containers no greater than 24 fluid ounces. Additional water and flavoring from fruit juices, sugars and other ingredients are permitted. More generally, the category of RTD spirits is a developing area for the beverage alcohol industry, full of enticing products marketed as margaritas or Moscow mules in a can.

Act 177 also creates a new definition of cider products, as a type of vinous beverage made solely from fermented apples or pears and containing no more than 16% ABV. Further, the law establishes two different tax rates for ciders: those with an ABV less than 7% will be taxed at the beer rate of 26.5-cents per gallon, and those with an ABV of 7% or greater will continue to be taxed at the wine rate of 55-cents per gallon. The new, reduced tax rate for lower-ABV ciders does not become effective until July 1, 2023.

As a control state, the Vermont Department of Liquor Control (DLC) has historically played a direct role in the distribution and sale of spirits in the state. However, with Act 177, the state has recognized that RTD spirits do not readily resemble traditional spirits products, and so has established a more liberal system for how these specific products can be sold in the state.

Under Act 177, RTD Spirits Beverages:

• Will now be sold in the private sector, like beer and wine products under 16% ABV.
  • Out-of-state distillers looking to sell their RTDs in Vermont will need to get a new Certificate of Approval (COA) to Distribute RTD Spirits Beverages. This license costs $985 and must be renewed annually by April 30.
  • COA holders will have to contract with licensed Vermont wholesalers to distribute these products within the state.
  • Like other spiritous products, they will be subject to Vermont’s Bottle Bill.
• Will be subject to a reduced tax rate of $1.10 per gallon, which is to be paid either by in-state manufacturers or the wholesaler distributing products made out-of-state. Higher-ABV spirits will remain subject to the $19.80 per gallon tax rate.

Additionally, Act 177 extends Vermont’s existing DtC shipping laws to RTD Spirits Beverages. Under these rules in-state and out-of-state distillers with a Basic Permit can apply for a Direct Ship license to ship their products directly to Vermont consumers. Current Direct Ship licensees will also be able to ship their RTD Spirits Beverages under their existing license. This license costs $330 and must be renewed annually by April 30.

Licensed Direct Shippers in Vermont:

• May ship no more than 12 cases (or 29 gallons) of RTD Spirits Beverages per individual per year.
• Must make deliveries only through a common carrier that will check IDs at the time of delivery and collect a signature from the recipient.
• Must retain five years of data for their shipments.
• Must conspicuously label all packages that contain alcohol.
• Must file a report to the DLC in January and July of each year, providing detailed accounts of their shipping activity in the state.
• Must collect and remit to the Vermont Tax Commission all excise and sales taxes for their shipments, which shall be levied as if the sale occurred in Vermont.
  • Vermont’s sales tax rate is 6%, with no local rates.

RTD Spirits Beverages may not be self-distributed to Vermont retailers, even with a Direct Ship license; that privilege will remain only available for wine products.

What do Vermont’s new rules mean for RTDs in general?

In all, the steps taken by Vermont in Act 177 are a positive sign of states recognizing spirits-based RTDs as a new product type, one that does not fit easily into existing categories. Even though they often contain distilled alcohol, they have a lower ABV per serving and are often intended to be consumed more like a beer or wine cooler. As such, the existing stringent rules that most states impose on spirits products, as compared to rules on wine and beer, do not always make sense for spirits-based RTDs.

By reducing the tax burden, and by creating equal processes for distributing and selling RTD spirits within the state, Vermont has done a service to the industry and its residents who want greater access to these products.